Wipro, one of India’s top three IT outsourcing providers, says that its customers are slowing down their cost cutting initiatives, stabilising demand for its services.

"We are starting to see the first signs of stability in the business as ramp downs start to taper off and volumes start to stabilise," said Wipro’s Azim Premji as the company release its latest set of financial results.

Total revenues during Wipro’s first financial quarter of the year, ending June 30 2009, were $1.31 billion, up 5% compared to last year. But the IT products and services practice (Wipro also has a customer care and lighting division) saw its revenues fall by 3.3% to $1.03 billion.

But profitability, even in the IT services division, was on the increase. Group net income rose by 13% to $213 million, while operating income for IT products and services went up 16% to $230 million.

The financial performance of the Indian outsourcing companies is being keenly watched as an indicator of how businesses are reacting to the recession. But it is difficult to draw too many conclusions from Wipro’s present set of results.

The 3.3% revenue dip is modest compared to other areas of the IT sector, and is in part explained by currency fluctuations. However, the profitability rise most likely follows headcount reductions that have been justified by the recession. In the past, India’s largest IT services providers have typically kept thousands of employees ‘on the bench’, but have recently been cutting down on over-staffing, therefore reducing operating cost.

According to a recent Gartner CIO survey, only 9% of respondents said they saw outsourcing as a cost cutting strategy. The survey also found that moving as much work as possible in-house was a common priority. However, cutting headcount was also an important objective.

Speaking to Information Age last month, S Ramadorai, CEO of Tata Consultancy Services suggested that CIOs might be reluctant to admit the degree to which they intend to use offshore outsourcing in the future.